The Differences Between a C Corp & an S Corp

by Christopher Carter, Demand Media

An S corporation is a distinctive type of corporate entity that provides special tax advantages to owners of the business. A C corporation, also referred to as a regular corporation, is automatically formed when a business decides to incorporate. S corporations must file paperwork with the Internal Revenue Service, which is not a requirement for C corporations.

Ownership

Ownership in an S corporation is limited to individuals who are U.S. citizens or resident aliens. Other businesses are not allowed to own shares of an S corporation. C corporations, on the other hand, may have partnerships, limited liability companies, foreign businesses and other corporations participating as owners of the company. S corporations may be better suited for smaller-sized businesses, since they can have no more than 100 shareholders participating as owners of the company. C corporations can have as many shareholders as they want.

Taxes

A big difference between an S corporation and a C corporation is the way that each entity gets taxed. S corporations are treated as pass-through entities, where taxation "passes through" to the company's owners, who report their share of profits and losses directly on their personal income tax return. S corporations are therefore not required to file taxes on the business level. C corporations, on the other hand, have a double layer of taxation. They have to file taxes with the Internal Revenue Service, and the owners are required to report dividends received from the company on their personal tax return.

Fringe Benefits

C corporations can deduct the cost of fringe benefits provided to employees, such as disability and health insurance. Shareholders who work for a C corporation do not pay taxes on fringe benefits received from the company. This holds true as long as the C corporation provides the fringe benefit to 70 percent of its employees. Shareholders employed by an S corporation who own more than 2 percent of the company cannot deduct fringe benefits.

Stock Considerations

A C corporation can issue multiple classes of stock, while S corporations cannot issue more than one class of stock. The various stock classes issued by a C corporation may carry various voting and profit privileges for the shareholders of the company. Since a C corporation's stock may be owned by a foreign person or business, a C corporation can operate the company in a global capacity.

About the Author

Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.

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